When an employee is terminated and asked to sign a termination letter, they are encouraged to have the letter and their original employment contract reviewed by an employment lawyer first. This is intended as a protective measure for the employee, to prevent them from accepting terms that may be unfair. However, a recent decision indicates this may also be of considerable benefit to employers, particularly if there is a concern that one or more of the employer’s termination clauses in the employment contract could be deemed unenforceable.
One year ago, the Ontario court released a decision called Waksdale v. Swegon North America Inc which created a headache for employers. In that case, an employee had brought a claim for wrongful dismissal, and the Court of Appeal ruled that the employer’s just cause termination clause in the employment contract was not valid. As a result, the court invalidated all clauses related to termination in the contract, rendering the entire section of the contract unenforceable.
Now the court has ruled on a new wrongful dismissal case involving an overly broad just cause termination clause. In this case, the court distinguished the matter from Waksdale because the employee had obtained independent legal advice prior to signing the termination agreement. In light of that advice, the Court allowed the remaining termination clauses in the contract to stand. Let’s examine these two cases a bit closer.
Waksdale v. Swegon: The Employer’s Termination Clause is not Valid
This was a case in which the employee was a short-term employee. He was terminated without cause nine months after he was hired. The employer paid the employee two weeks of pay in lieu of notice. The employee brought an action against the employer for wrongful dismissal. In court, the employer conceded that the “Termination for Cause” provision in the contract unfairly attempted to limit the employee’s entitlement to severance pay in the event of termination for cause. As a result, all parties were in agreement that the clause was invalid because it violated the Employment Standards Act. The employer argued, however, that the invalid clause could be lifted out of the contract, leaving the rest of the termination section intact. The motion judge agreed and dismissed the employee’s action. The employee appealed the decision.
The Ontario Court of Appeal overturned the motion judge’s finding. The appeals court found that the invalid clause had the effect of rendering the entire section of the contract unenforceable. Given that one part of the termination section contravened the Employment Standards Act the entire section had been compromised.
The Court of Appeal opined that due to the power imbalance between employees and employers, as well as the remedial protections offered by the Employment Standards Act, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s rights. Courts will not allow employers to enforce termination provisions that are found to be illegal, whether in whole or in part.
The Court of Appeal further found that in conducting this analysis, it was irrelevant whether the termination provisions were found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.
The Court of Appeal also found that the motion judge had erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.
Rahman v. Cannon Design Architecture Inc.: Employee’s Legal Advice Distinguished the Case from Waksdale
Cannon Design Architecture Inc. hired Rahman, the employee, as a principal architect in 2016. When the employee was hired, she was provided with an offer letter to which an Officer’s Agreement was attached. This Officer’s Agreement contained general terms which would form part of the proposed terms of hiring. The offer letter outlined, that in the event of any conflict between the Officer’s Agreement and the offer letter, the offer letter would govern.
Four years later, the employee was terminated without cause. At the time of dismissal, the employee was in her early 60’s. She remained unemployed as of the date of the hearing. The employee brought an action for wrongful dismissal. The employee specifically had concerns about the just cause termination clause in the employment contract, which stated that the employer “maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal”.
The clause allowed for termination for cause in a much broader context than allowed for under the Employment Standards Act, which states that there must be willful misconduct to justify a just-cause termination. As a result, the employee asked the Court to find all clauses related to termination were invalid, as in Waksdale.
Employee Had Sought Advice of a Lawyer Prior to Executing Termination Agreement
The Ontario Superior Court in this case found that the employee had obtained independent legal advice prior to executing the termination letter. Her lawyer had pointed out various issues pertaining to the termination wording in the original employment contract. The employee had forwarded these concerns to the employer, who made changes to the terms regarding severance pay as a result.
The court concluded that here, there was no basis to apply strict or even adverse construction approach to the termination provisions. The termination provisions were the object of specific negotiation with the benefit of time and independent legal advice between reasonably sophisticated parties.
Given all of the above, the Ontario Superior Court of Justice found no contravention of the Employment Standards Act.
Contact Toronto Employment Lawyers Grosman Gale Fletcher Hopkins LLP for Assistance with Terminations
This new decision indicates that when an employee obtains independent legal advice prior to executing a termination agreement, it may serve to protect the employer as well as the employee. For advice on wrongful dismissal disputes, termination packages, and other employment or labour law matters, contact the employment lawyers at Toronto employment firm Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.
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